Germany won't funnel oil money from India to Iran

A plan for India to funnel oil payments to Iran through Germany's central bank at a time when Tehran faces international sanctions has been scrapped, a German government official said today.

The deal, which reportedly would have been worth up to $13 billion a year, has not been forbidden by the German chancellery, but the government did hold talks about it with the Indian government, the official said.

The arrangement required Berlin's approval due to tight financial controls amid international sanctions against Iran, whose government is suspected of developing nuclear weapons.

"The Indian counterparts came forward saying they wanted to use other means of payment from now on," the official said. He spoke on condition of anonymity due to the sensitivity of the issue.

The German newspaper Handelsblatt reported India was planning to buy Iranian crude worth USD 13 billion a year and transfer the money through Germany's central bank to an Iranian bank in Germany, the European-Iranian Trade Bank (EIHB).

Germany's government and the central bank, the Bundesbank, declined to discuss the value of the transfer plan or any further details of the agreement with the Indian government. Emails sent to the EIHB were not immediately answered today.

The bank, based in Hamburg, is not directly targeted by UN or EU sanctions, but has to notify authorities of all transfers to Iran above USD 14,000 and needs to get prior approval for any transfer above USD 57,000, government spokesman Steffen Seibert said last week.

Any transfer suspected of being connected to weapons proliferation or other exports business forbidden by the EU can be denied, the government has said noting that oil trading is generally not targeted by sanctions.

However, facilitating business with Iran while the international community seeks to intensify pressure over its controversial nuclear program has raised questions. Germany's opposition welcomed the government's about-turn.

"In this way, at least, the damage to Germany's image doesn't go any further," said Gernot Erler, an opposition lawmaker.

In February, India's finance minister Pranab Mukherjee said the country was working with Germany's Bundesbank to find a way "to expedite payment to Iran."

India reportedly imports 12 million barrels of crude oil, or over 12 per cent of the nation's total, every month from Iran. This makes Iran its the second-largest supplier after Saudi Arabia.

In December, India's central bank scrapped the long-standing mechanism the country had used to pay for Iranian oil after fresh European Union restrictions on Iran made compliance with regulations difficult.